Borrowing Money and Government Aid Can’t Stop Foreclosures
Foreclosures on the rise
Despite credit cards, borrowing money and government aid, many homeowners lost their homes to foreclosure. A recent survey done by the Mortgage Bankers Association showed that one in every seven home loans in the US were either past due or in foreclosure. That is the highest delinquency rate since 1972, when the survey first began. Jay Brinkman, the MBA’s chief economist said, “Despite the recession ending in midsummer, the decline in mortgage performance continues. Job losses continue to increase and drive up delinquencies and foreclosures, because mortgages are paid with paychecks, not percentage-point increases in GDP.”
Signs of the times
It may seem contradictory to an improving market that foreclosure numbers are up, but a closer look at what is happening shows that it is appropriate. Here are some reasons why:
1) A deeper look at the economy. The MBA did research on what really started the economic downturn in terms of housing and its beginning was the subprime mortgage loan crisis. Almost everyone was able to get a loan back in 2006 and 2007. When the unemployment rate began to climb, the labor market pushed hard against housing industry. Brinkman said, “A job loss, after all, can prevent even borrowers with sound credit histories from paying the mortgage.” Subprime mortgage holders started the problem, but when consumers with good credit started losing jobs, foreclosures began rising even quicker.
2) Geographic locales. It’s startling to see how certain areas more than others, have been affected by foreclosure saturation. For example, Nevada, Arizona, California and Florida are the hardest hit states when it comes to depressed properties. Studies have shown that Florida for example, has a delinquency rate of 25%, which means one in every four homes is either past due or in foreclosure.
3) Huge inventories of depressed homes. Although there are signs of stability on the horizon, the National Association of Realtors still notes a huge inventory of available properties. Michelle Meyer, economist for Barclays Capital, said, “We continue to believe that nearly 6 million foreclosed homes will enter the market over the next three years, which will keep inventory of existing homes elevated. Foreclosures remain the biggest hurdle to the housing recovery.” Consumers who are borrowing money to purchase homes may be surprised at how vast their home options are for years to come.
4) The unemployment rate. The bottom line of the foreclosure crisis is that mortgage delinquencies are not expected to level off until the labor market is cured. Experts are predicting that 2010 will still be a time for high unemployment, in particular at the beginning of the year. Meyer added, “The delinquency rate is going to stay up there for a while because the job market is going to be really weak for a while.” It may take until mid- to late-2010 before true signs of a drop in foreclosures are evident.
Despite the signs
Despite signs of stabilization, experts warn that the foreclosure crisis is far from over. When it comes to true economic recovery, consumers have to be concerned with the big picture. That includes everything from the number of homes on the market, new methods for borrowing money, the unemployment rate and geographic recovery of the hardest hit economies. It will take time for all of these to show true signs of economic turnaround.